The euro is in positive territory today extending the gains seen on Monday. In the European session, EUR/USD is trading at 1.0262, up 0.35% on the day.
German manufacturing declines
The data out of the eurozone was none too encouraging today, but the euro shrugged off the numbers. Manufacturing PMIs across the eurozone recorded declines, with readings below the 50.0 level. In Germany, the July PMI came in at 49.3, down from 52.0 in June. The manufacturing sector has been struggling for months, so the drop into contraction territory is not all that surprising. Still, this is the first time in over two years that Germany’s manufacturing sector has recorded a decline, which is bound to worry the markets.
Manufacturing across Europe is struggling, as demand has fallen after the post-Covid surge. High inflation and the uncertain economic outlook (think Ukraine war and energy crisis), are additional headwinds for manufacturing, which could continue to post declines in the coming months if the eurozone economy doesn’t improve.
There was no relief from German retail sales for June, which came in at -1.6% MoM, down from the 1.2% gain in May and shy of the 0.2% estimate. On an annualized basis, retail sales fell 8.8%, after a 1.1% gain in May, and worse than the forecast of -8.0%. The German consumer is in a surly mood due to the cost of living crisis and is holding tight onto her purse strings. Weak consumer spending will, unfortunately, only exacerbate the weakness we’re seeing in the German economy.
Eurozone inflation hits new record
Eurozone inflation is expected to rise to 8.9% in July YoY, up from 8.6% in June. Energy prices continue to be the main driver behind surging inflation, with a massive 39% jump compared to July 2021. Inflation is much more broad-based than just energy prices, as food, alcohol, services and industrial goods are also rising in price. This will make it difficult for the ECB to reel in inflation, with the danger that inflation expectations will become unanchored as broad-based inflationary pressures continue to accelerate.
EUR/USD Technical
- EUR/USD is putting pressure on 1.0291. Above, there is resistance at 1.0355
- There is support at 1.0194 and 1.0130
